U.S. factory, housing data suggest economy losing steam

WASHINGTON Mon Oct 28, 2013 4:06pm EDT

Workers assemble built-in appliances at the Whirlpool manufacturing plant in Cleveland, Tennessee August 21, 2013. REUTERS/Chris Berry

Workers assemble built-in appliances at the Whirlpool manufacturing plant in Cleveland, Tennessee August 21, 2013.

Credit: Reuters/Chris Berry

Related Video

Video

Home resale contracts tumble

Mon, Oct 28 2013

Related Topics

WASHINGTON (Reuters) - U.S. manufacturing output barely rose in September and contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years, the latest signs the economy's momentum ebbed as the third quarter ended.

The reports on Monday showed economic activity was on weak footing even before a 16-day partial shutdown of the U.S. federal government early in October that is expected to weigh on fourth quarter growth.

"The economy seems to be losing steam as higher mortgage rates have hit the housing market and destructive government policy will likely bash the rest of the economy," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania.

Manufacturing production edged up 0.1 percent last month after advancing 0.5 percent in August, the Federal Reserve said.

Factory output was held back by a 0.5 percent drop in computer and electronic goods production. Output of electrical appliances also fell.

While automobile output increased 2.0 percent, that was a sharp slowdown from the 5.2 percent rise logged in August.

Separately, the National Association of Realtors said its Pending Homes Sales index, based on contracts signed last month, plunged 5.6 percent to the lowest level since December.

The decline was the largest since May 2010.

The index, which leads home resales by a month or two, has now dropped for four straight months. Realtors believe home resales, which dropped in September, peaked in July and August.

The reports come on the heels of data last week showing a gauge of business spending tumbled in September. That data, combined with a disappointing reading on hiring released earlier this month, has offered a dull picture of economic activity.

Thomas Costerg, U.S. economist at Standard Chartered Bank in New York, said a run up in interest rates over the summer on expectations the Fed would soon trim its bond-buying stimulus appeared to be holding back the economy.

"This will make the Fed even more cautious when they next start to hint at tapering," he said.

Rates on 30-year fixed rate mortgages rose to an average of 4.49 percent in September from an average of 3.54 percent in May, according to Freddie Mac. But a surprise decision by the central bank in mid-September not to cut its purchases and soft economic data have pulled rates lower since then.

With politicians in Washington still to agree on a budget, uncertainty over fiscal policy may also continue to hinder growth, making it unlikely the Fed will be in a hurry to start scaling back its purchases.

Fed officials meet on Tuesday and Wednesday and are expected to maintain their $85 billion per month bond-buying pace.

WEAK DOMESTIC AND GLOBAL DEMAND

While manufacturing accounts for only about 12 percent of U.S. economic activity, it was the main driver of the economy from the 2007-09 recession.

Factory output rose at a 1.2 percent rate in the third quarter, rebounding from a 0.1 percent fall in the prior three months. Economists expect manufacturing slowed in October as the federal government shutdown hurt business confidence.

The weak manufacturing data contrasts with fairly upbeat business surveys. For example, a closely watched gauge from the Institute for Supply Management has been pushing higher since contracting in May.

"We are inclined to focus on actual activity gauges like manufacturing production, rather than surveys, which have given several false signals during this recovery," said Peter D'Antonio, an economist at Citigroup in New York.

"The soft manufacturing output reflects weakness abroad, little need to build inventories, and the general slowdown in demand in the first half of the year."

Despite the softness in factory output, a rebound in utilities output lifted overall industrial production 0.6 percent, the largest increase since February.

Utilities rebounded 4.4 percent in September after five straight months of declines. Mining production rose 0.2 percent, but that was a slowdown from at 0.6 percent increase in August.

Last month, the amount of industrial capacity in use rose to 78.3 percent, the highest level since July 2008, from 77.9 percent in August.

(Reporting By Lucia Mutikani, additional reporting by Jason Lange; Editing by Andrea Ricci and Meredith Mazzilli)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (25)
Des3Maisons wrote:
If anyone thinks the U.S. economy is going to recover they are dreaming. Corporate America is shipping every job they can out of the country and depressing wages and benefits of American workers here while hiring the cheapest labor they can find. If the immigration bill passed in the Senate passes the House it will get even worse. We are watching a transfer of poor and middle class wealth into the pockets of the rich and big business with the help of a Congress on the take. They won’t be happy until we only have two classes of people here – the working poor and the rich.

Oct 28, 2013 10:34am EDT  --  Report as abuse
gcf1965 wrote:
I think we are on our way back to the roaring 20′s….20% unemployment, 20% inflation, 20% homelessness, 20% net take home pay,……

Oct 28, 2013 10:46am EDT  --  Report as abuse
i2506 wrote:
Looks like we survived another year. Soon the American people will take to the malls for Christmas shopping, keeping the economy moving – for now. This spring will be rough. By this time next year, a report that sounds like this one would be welcome news compared to what we’ll face.

Oct 28, 2013 11:46am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.